Posted on 03-10-2020.
As the virus spreads across countries, the world’s economies feel the negative impact. In December 2019, when the COVID-19 outbreak took on, two-thirds of the total Bitcoin mining capacity was localized in China, the patient zero country. The virus harmed many sectors of China’s industry, disrupted logistics, and made export and import operations significantly more complicated. Many businesses are on the brink of bankruptcy because of insufficient cash flow, low reserves, and complications with loans and debt restructuring. Some companies, including miners, may not survive the crisis. We’ve gathered the data and expert opinions to figure out how the COVID-19 epidemic impacts traditional markets and the crypto-industry.
“[COVID-19’s] highly contagious nature will cause more cities to quarantine and will continue limiting people’s ability to work. While the equity markets have been red hot to start the year, I am convinced that COVID-19 will continue to cause negative shocks for months to come. Companies will start missing their forecasts and the rest will snowball,” wrote The Block’s analyst Larry Chermak.Despite the Chinese authorities’ measures to try and stabilize the country’s economy, on February 3d the country’s exchanges witnessed the most radical downturn for the last 13 years. CSI 300 index lost over 9% and Shanghai Composite lost over 8% showing the worst results since 2015. According to Bloomberg, a third of all Chinese companies have only a month-worth of resources to keep the operations running. By the end of 2019, China’s GDP growth rate amounted to 6.1%, which is the worst result for the last three decades: China’s GDP growth rate. Source: TradingEconomics. Nouriel Roubini thinks that after the epidemic the world’s economy won’t get back on its feet quickly. He stresses that it is a global pandemic that’s not confined to China. In his opinion, the fiscal and monetary incentives suggested by governments and central banks won’t be sufficient to revive the business activities. Bank of America’s analysts expect the global GDP growth to slow down to 2.8%, which would be lower than the 3% result of 2009.
“The country’s internal logistics is almost completely paralized. Strategic cargoes needed to fight the virus and food are prioritized. Given that people can’t go to work and the police enforces this rule, delivery and installation of new ASIC’s is virtually impossible,” said Zodd Zverev.He added that the economic uncertainty and the measures taken by the Chinese government increase the demand for crypto in the country. In his opinion, the decrease in China’s electricity consumption may lead to a shutdown of several hydroelectric power stations, causing mining farms to stop and therefore the leading to a drop in the total hashrate. Although, the expert also sees certain positives in the given situation.
“Obviously, the Bitcoin price is unlikely to double in anticipation of the halving, so any delay in deployment of new equipment will help the sector remain profitable. Even an event as dramatic and horrible as the coronavirus epidemic can bring some benefits along with it.”BitCluster co-founder Sergey Arestov is confident that the mining business located outside of China will gain profitability after the expected mining difficulty drop. This will have a positive effect on Bitcoin network decentralization. Canaan forecasts that ASIC miners may soon get more expensive, as the disrupted production and delayed deliveries will cause a market deficit. In early February, the founder of BTC.TOP mining pool Jiang Zhuoer reported that a large mining farm in China is at risk of being closed by the authorities. He argued that it isn’t clear how stopping mining equipment will help prevent the spread of the epidemic. Alejandro De La Torre, vice-president at Poolin mining pool, told ForkLog that mining companies are moving from Southern to Northern China seeking cheaper electricity, while also moving away from the epidemic epicenter.
“Yes, there are measures taken to prevent further spread of the virus, but for the most part everything works at full or at almost full capacity,” he said.The chart below shows that there were no significant downturns in hashrate, although it’s growth became somewhat slower. The estimated number of terahashes per second (trillions of hashes per second) the Bitcoin network is performing. Source: blockchain.com De La Torre hopes that the COVID-19 situation should normalize in 1–2 months, but there may be a short-term decrease in hashrate. He said that the industry needs mining companies outside of China and the virus creates the conditions for the development of such companies. A former Bitmain manager, who wished to remain anonymous, said that the virus hindered deliveries of new equipment. This may lead to a drop in Chinese mining farms’ productivity. The companies without sufficient cash flow will be the first to suffer.
“If the supply of mining equipment turns out to be insufficient, the farms won’t be able to work as usual and will have to close because of the lack of funds. This will be a serious blow to the industry players,” he noted.MicroBT representatives stated that up to 80% of the company’s employees are currently working from home, but the business is up and running. Earlier the company had to extend the Chinese New Year holidays. https://twitter.com/Whatsminer_MBT/status/1222517512220200962 MicroBT also noted that the top executives of the company didn’t leave China and there were no COVID-19 cases among the employees. MicroBT has offices in Shenzhen, Beijing, and Shanghai. The company representatives couldn’t say for sure when the situation will get back to normal. Many companies across the globe have already come up with plans in case the epidemic gets worse. The most pessimistic scenario expected by Coinbase implies that all employees will work remotely. As for the Bitcoin price, there are all sorts of suggestions. Some people say that banknote quarantine and other measures taken by China’s central bank give a positive signal for Bitcoin, which has no physical form. https://twitter.com/LinaSeiche/status/1228940414310178819 Yet, QuantumEconomics co-founder Mati Greenspan said that Bitcoin isn’t really used as payment in China:
“Bitcoin is not commonly used in China and therefore cannot be a viable replacement for cash. Especially when Wechat and AliPay are already widely accepted in the country.”Still, the shift towards digital currencies could’ve inhibited the spread of the virus. China’s central bank seems to agree with this idea and may ramp up the efforts to develop digital yuan. On the other hand, there are reports about increased demand for Bitcoin in Iran. The surge may be caused by the shortened work hours of the country’s banks. Fundstrat Global Advisors co-founder Tom Lee believes that Bitcoin will grow on the backdrop of the global instability and COVID-19 epidemic. In his opinion, the upcoming halving event will increase the demand for the first crypto even more.